Politics

Why the Trans-Pacific Partnership Failed

Technocrats and plutocrats loved it. Everybody else hated it.

Activists hold signs as they rally during an anti-Trump and anti-TPP protest November 14, 2016 in Washington, DC.
Activists during an anti-Trump and anti–TPP protest on Nov. 14, 2016 in Washington, D.C.

Alex Wong/Getty Images

Was Donald Trump’s decision to withdraw from the Trans-Pacific Partnership a great move for America or a trade travesty? The answer will depend on what lessons we take away from the experience. The real divide over TPP was not between free traders and protectionists. It was between those who trusted America’s trade negotiators to represent their interests—namely, the representatives of large and influential U.S. corporations that have thrived in the age of globalization—and those who did not—working-class voters who see globalization as an unmitigated disaster. The only way our trade policy can succeed is if America’s trade negotiators can somehow broaden the circle of trust, and that won’t be easy.

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To understand why, consider three separate arguments for TPP, all of which have at least a grain of truth.

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First, there’s the geopolitical case: TPP was a U.S.–led effort to counter China’s growing influence in East Asia by deepening economic ties among 12 Pacific Rim countries, most of which are longstanding U.S. allies. Essentially, the TPP signatories would serve as a bloc that could dictate terms to the Chinese, and that would allow China to join in the fun only if it agreed to make major concessions. If you embrace this argument, any job losses associated with TPP would have to be weighed against the geopolitical benefits of cementing such a massively powerful economic alliance.

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Second is the nationalist case: The goal of TPP wasn’t free trade for free trade’s sake. It was to stack the trade deck in a way that would benefit U.S. exporters. If the U.S. cared only about helping American consumers, it would eliminate all tariffs and nontariff barriers that prevent foreign companies from competing freely in our marketplace, regardless of what other countries did. This unilateral approach, which is one that most ardent free traders favor, has very little purchase in real-world trade policy debates. Instead, TPP was like virtually all other U.S. trade agreements: It involved trading greater access to the U.S. market for greater access to foreign markets, on the grounds that it would be unfair to trade on anything less than a level playing field. It just so happens that—according to pro–TPP nationalists, at least—TPP was designed to prize open markets in which U.S. exporters had a particularly strong foothold.

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Finally, there’s the globalization-is-good case. One of the reasons U.S.–based multinational corporations are wary of setting up shop in other countries is that they’re afraid foreign governments will subject them to a tangle of rules and regulations that make it difficult and risky for them to do business. Say you’re a U.S. pharmaceutical company and you want to sell your products overseas. How can you be confident that the local government won’t steal your intellectual property? If you’re looking to manufacture your products in another country, can you feel confident your factories won’t be seized by the government, or shut down on spurious grounds? Because tariffs are already quite low in the larger TPP countries, the chief motivation behind the pact was to make it easier for rich-country multinational businesses to shift production overseas by harmonizing rules and regulations in all of the countries that had signed up.

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Might TPP accelerate the offshoring of production activities? Wouldn’t it increase the leverage U.S. multinationals have over their domestic workforces? Sure. But for believers in the globalization-is-good case, this wasn’t an outcome to be feared. By making U.S. multinationals more valuable, globalizing production would enrich shareholders, senior executives, and high-wage employees working in jobs that can’t be sent offshore (yet). Lower-wage employees might lose their jobs in the process, but they were going to lose their jobs to automation regardless. Better to improve the safety net to provide for displaced workers than to put roadblocks in the way of offshoring jobs.

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Note that the nationalist case and the globalization-is-good case are in direct opposition to each other. Pro–TPP nationalists want U.S. exporters employing U.S. workers to sell more goods and services in foreign markets. Pro–TPP globalists, in contrast, are just fine with U.S. firms employing foreign workers to sell goods and services in foreign markets.

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As a political matter, the nationalist case for TPP was by far the most appealing. But you couldn’t make the nationalist case and expect the governments of America’s TPP partners to be thrilled about it. The geopolitical case had fairly limited appeal. And besides, in the world of international diplomacy, it’s not always wise to telegraph your intentions so clearly. Better to emphasize that you’d be more than happy to include the Chinese in the deal that you and your friends have assembled, if only they’d come to their senses about a few things. As for the globalization-is-good case, it was as toxic to rank-and-file voters as it was attractive to corporate executives

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Now that it’s dead and buried, what can we learn from TPP? Mostly, that Washington needs a new framework for trade policy. U.S. trade negotiators have long been more responsive to the demands of elite interests than the interests of the working class. You can hardly blame them. In the absence of some countervailing pressure, it is inevitable that negotiators will come to see the most deep-pocketed firms and industrial sectors as their clients. In particular, my sense is that financial-services firms (which want to crack open foreign markets protected by various domestic regulations, and which enjoy a great deal of influence via donors and the armies of political appointees who either have been or will be employed by banks and private equity firms), pharmaceutical companies (which were deeply interested in imposing strong intellectual-property protections in other countries), Hollywood (the same), and agriculture (not least because agricultural interests are massively overrepresented in Congress) have long played an outsized role in trade negotiations.

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And as for middle-class U.S. workers? The Obama White House was sensitive to the concerns of organized labor. But it is fair to say that U.S. multinationals had a much louder voice in the process than, say, domestic manufacturing workers, who’ve seen their political clout dwindle along with their numbers. But the recent election should teach politicians of all stripes that they ignore domestic workers at their peril. And the United States’ international partners, facing the downsides of having one deal torn up, might now be more willing to stomach a version of the nationalist case that puts U.S. workers first. It would be one thing if we could assume that the interests of U.S. multinationals and middle-class U.S. workers are perfectly aligned, but we can’t. What we need is a trade policy that tilts the scales in the other direction—one that is less solicitous of large American corporations and more solicitous of American workers.

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